Tesla Stock Drops on a Downgrade. Why Its Price Target Was Raised.

Coming into Monday trading, Tesla stock was up 13% this year. (Ina FASSBENDER / AFP via Getty Images)

Key Points

• Tesla stock fell after Morgan Stanley’s Adam Jonas, a longtime bull, shifted focus from automotive coverage.
• New analyst Andrew Percoco initiated coverage with a Hold rating and a $425 price target, below the current trading price.
• Fewer than 40% of analysts now rate Tesla stock a Buy, compared with the S&P 500 average of approximately 55%.

Tesla stock dropped early Monday after a longtime bull moved on to focus on things that, well, Tesla is focused on, too.

Shares of the electric-vehicle maker and AI company fell 3.4%, closing at $439.58, while the S&P 500 and Dow Jones Industrial Average were off 0.4% and 0.5%, respectively.

The drop came after Morgan Stanley analyst Andrew Percoco took over automotive coverage for Adam Jonas, who no longer covers car stocks and is now focusing on “embodied AI.”

That, of course, is what Tesla’s business model is morphing into. It still makes EVs, but shareholders view it as an AI company, using powerful computing to put well-trained AI brains into physical products, such as robo-taxis and humanoid robots.

(CEO Elon Musk’s new trillion-dollar pay package includes incentives linked to selling one million humanoid robots and deploying one million robo-taxis.)

Despite the overlap, Jonas didn’t keep coverage of Tesla. He rated Tesla stock Buy and had a $410 price target for shares. Percoco actually raised Morgan’s price target to $425, but that is still below where shares are trading. His rating for Tesla stock is Hold.

He still seems to like shares, though. It wasn’t a harsh downgrade. “For longer term investors, we see an attractive risk reward with 89% upside to our $860 bull case valuation, which could be in play in the next 12 months if Tesla manages through the EV-downturn while demonstrating progress in scaling Robotaxi into more geographies without the safety driver…rolling out unsupervised FSD to passenger vehicles, and scaling production of [the humanoid robot] Optimus,” he wrote.

Percoco, like his predecessor, is focused on AI. There are risks, though. “Conversely, our $145 bear case valuation (70% downside) assumes greater competition and margin pressure across all business lines, embedding zero value for humanoids, slowing the growth curve for Tesla’s robo-taxi fleet to reflect regulatory challenges in scaling a vision-only perception stack, and lowering market share and margin profile for the autos and energy businesses.”

His base case includes a $60 per share valuation for the “nascent” humanoid robot business. Tesla hopes to start selling AI-trained humanoid robots as soon as 2026.

With the ratings swap, fewer than 40% of analysts covering the shares rate them Buy, according to FactSet. The average Buy-rating ratio for stocks in the S&P 500 is about 55%. The average analyst price target for Tesla stock is about $401.

Coming into Monday trading, Tesla stock was up 13% this year and 17% over the past 12 months.

Write to Al Root at allen.root@dowjones.com